<General Article>Price Elasticity and Pass-Through in the Nash Bargaining Solution in a Common-Retailer Channel

Abstract

This paper analyzes the role of the industry's price elasticity and the determinants of pass-through in the Nash bargaining solution in a distribution channel with a common retailer. It is shown that the division of the upstream and downstream profits is characterized by (i) the industry's price elasticity, (ii) the Nash bargaining weight, and (iii) the number of upstream firms. I also show that the demand curvature plays an important role in the determination of pass-through rates. These results are generalized if the number of upstream firms is endogenized.